One question that will continue to be raised with legal malpractice insurance carriers is along these lines, “When must we report a claim.” While we do work with a few firms whom over report, the real problem is with firms who fail to report matters in a timely fashion. This is a dangerous course of action as coverage can be denied. An interesting case [Cass v American Guar. & Liab. Ins. Co. 2006 NY Slip Op 52169(U)] underscores the significance of timely reporting and sheds a little light on where the line is drawn on when to report.

A New York attorney and his firm represented a client in a disability claim before the state Workers’ Compensation Board. The client’s disability benefit was reduced and eventually suspended based upon the report of an orthopedist hired by the client’s employer. The doctor was never cross-examined. Further compounding the problem, two experts hired by the firm failed to appear for hearings and their testimony was precluded. In November of 2005, it was determined that the client had no disability. The client sued for malpractice in March of 2006 and the claim was reported to the firm’s malpractice carrier that same day. Two weeks later the insurer denied coverage on the grounds that the claim was not reported in a timely fashion as required under the policy and the firm eventually filed suit to challenge this decision.

The judge in this coverage dispute sided with the carrier and stated in essence that allowing four months to pass with knowledge of circumstances that a reasonable attorney would view as likely to result in a claim was untimely as a matter of law. Further, the attorney’s argument that the claim was meritless was rejected. The judge wrote, “The issue is not whether or not plaintiffs actually committed malpractice, or whether they subjectively believed there was no conduct which could give rise to a claim, but whether a reasonable attorney would have expected a malpractice claim under the circumstances.” This gets to the crux of the matter when it comes to trying to determine when to report a potential claim. It isn’t about whether a claim is viewed as frivolous or if a suit has been filed. It’s about following through with the contractual terms of the policy which require the insured to report upon becoming aware of any act, error or omission which happens before the end of the policy period and which could reasonably be expected to give rise to a claim against the insured. That’s it.

So, don’t procrastinate when it comes to reporting a potential claim. While there is no bright line in the real world, when in doubt practical thinking would suggest the prudent thing to do is to report. As this firm came to realize, failure to do so can be disastrous.